1980: Not a year for economic history books

A great deal could have happened in 1980 but didn't. It could have been (in the Chinese fashion of naming years) a year of the galloping horse but turned out instead to be a year of the snail. The year began with a political bang - a massive victory for the new ruling party - and ended in a low whimper. It was not a year for the history books - not economic history books anyway. It is now almost certain that 1980-81 will end up with roughly the same gross national product (GNP), in real terms, as 1978-79, which means in effect that time has stood still for the last two years. Government spokesmen have been talking in terms of an improvement in the growth rate to around 6 per cent but that is only because 1979-80 was such a bad year, with a negative GNP rate as well as a negative industrial growth rate, and things could not but go up. But what is most galling is that despite a good monsoon and a reasonably good kharif crop, industrial output may not show much of an improvement over 1979, which was in any case a bad year for industry. Government spokesmen, including Finance Minister Ramaswamy Venkataraman, still swear by a 6 per cent industrial growth rate, but they are obviously whistling in the dark, for latest trends indicate that the figure may not cross even 3 per cent, which is about a third of the fairly modest target of 8.5 per cent set for the year. 11 was not an impossible target: the actual growth rate achieved in 1979 was 7.6 per cent.In other ways too the trends point to a state of affairs that can hardly be said to be encouraging. It is now almost certain that the external trade gap in 1980-81 will cross Rs 4,000 crore, even without taking into account the latest hike in Organisation of Petroleum Exporting Countries (OPEC) oil prices. If so, it will be nearly twice as big as the gap of Rs 2,200 crore reached two years earlier, and seven times the gap in, the Janata government's first year (1977-78). But for the record level of foreign exchange reserves. India would now be reduced to scraping the bottom of the barrel, and will probably soon start doing so, unless there is an upturn in its export fortunes.Government's Contention: On prices, there has been some letup but only of a marginal character and even the Finance Ministry has been trying to explain away the failure on the price front by saying that prices have "stabilised at the current level." This, is almost like saying that the poor man is still starving, but since he is now used to it, he doesn't feel the pain anymore. However, even the reading of the inflationary situation is not strictly accurate. The wholesale price index went up by 16.5 per cent during the year ended November 22, 1980. A year ago (year ended November 10, 1979 to be exact) the index had gone up by 16.3 per cent during the same 12-month period. If inflation has really stabilised itself, it has done so at a higher level than last year's and has possibly a lot of heat in it.Graffiti on a wall emphasise declining incomes: Grim portentsThe Government's contention - apart from the handy excuse that it was busy clearing up the mess left by the previous administration - is that things were really beyond its control and much of the blame for price rise and other ailments should be placed at the door of outside forces, including the OPEC countries. The argument does not really wash. If anything is within the Government's control, it is the economy. Nothing can move in this country without the Government saying so. On the price front, the OPEC countries have much to answer for, but, apart from the foreign trade gap, their impact on India is not overly large. Crude petroleum, which is what is imported, accounts for no more than one percent of the weight tage in the calculation of the wholesale price index and this has gone up by only 31 per cent this year as against 57 per cent last year. On the other hand. prices of sugar (with a weightage of 7 per cent in the index) went up by 55 per cent this year against 39 per cent last year. So the items over which the Government can and does exercise control have shot up this year far more than those that lie outside its jurisdiction. The present crisis is therefore man-made or rather state-made, and only the state can resolve it.The picture in regard to industrial output is even more bleak. Statistical jugglery apart - the Industry Ministry regales the public with fancy figures work - the fact remains that out of the last 10 months (January-October 1980) for which figures, some provisional. some projected, are available, there is only month in which industrial output exceeded the corresponding figure in the previous year by 2 per cent while there were five months during which the output fell by more than two - often as such as 5 per cent. In every year, there is generally a peak month which is almost always better than the previous year's peak month. This year, the peak month (March) was 5 per cent worse off than last year's peak month and only marginally better than the best month of 1978. This means that there is very little pep left in the industrial sector and it continues to lumber along like an old carthorse pulling too much weight.Close Connection: Here again, the contention that the Government has no control over the industrial scene does not hold water. According to official sources, six infrastructure industries accounting for a total weight of 23 per cent in the industrial index, showed a decline of two per cent in production over the 10-month period January-October, 1980 over the corresponding period last year. The six include electricity (down 0.1 per cent), steel (down 4.8 per cent), crude oil (down again by as much as 25 per cent mainly due to troubles in Assam), oil refinery products (down by 10 per cent) and cement (down by 3.! per cent). Only coal output has improved (by 7 per cent). It so happens that the bulk of these industries are in the public sector (excluding perhaps cement), which knocks the bottom out of the usual explanation that things have gone out of hand because they are really out of the Government's control.If 1980 was a year of persisting stagflation - stagnation in production, inflation in prices - will things be better in 1981? The answer is yes, and no. They will be better in so far as prices are kept under control, but since there is no evidence that the Government really can manage to keep them under control, things could be much worse.There is a very close connection with ups and downs in price levels and industrial output which seems to have escaped most observers of the Indian economic scene. Whenever prices have gone up, the industrial output rate has invariably taken a plunge. This has happened time and again throughout the plans and even in the absence of plans and will almost certainly happen again. Going back only about five years, the wholesale price index went up by a whopping 25.2 per cent in 1974-75 and the rate of industrial output came down from 4 to 2.6 per cent. In the following year, prices actually came down by 1 percent and the industrial output index more than doubled to 6 per cent. In 1977-78, the price index went up by 5.2 per cent and immediately brought down the industrial production index from 9.5 to 3.9 per cent, that is, by nearly 60 per cent. In 1978-79 prices fell by 0.1 per cent and industrial output rate went up from 3.9 to 7.6 per cent. Last year (1979-80) prices went up by nearly 20 per cent and the industrial output rate was reversed from 7.6 to minus 1.4 per cent. There has been a slight improvement in the price situation this year and there has also been a slight improvement - no more than a flutter - in the industrial output rate.Ominous Rumblings: But prices can be expected to rise, again very soon, mainly for two reasons. Firstly, as a result of the latest hike in OPEC oil prices, and secondly - and this is much more important - the inevitable twist that the price spiral will receive following the farmers' agitation. Foodgrain prices have been rising steadily over the years in India but rarely as a result of farmers' trade unions. For the first time now, farmers are organising trade unions of their own with men like Sharad Joshi in Maharashtra and others in several farm states and it is only a matter of time before their clout makes an impression on the economy. The close connection that exists between the price level and the rise and fall in industrial output is actually transmitted through foodgrain prices. Sharad Joshi and his friends literally hold the country's economic health in their hands just as George Fernandes and his friends used to hold industry and Railways in theirs. Sharad Joshi did not take part in the "Long March" to Nagpur but George Fernande did and though it is unlikely that the two (and their friends) would ever combine, the outlook is indeed grim if they do.Almost the first impact of the farmers' agitation will be felt on the planners and of course on the finance minister. The most conservative estimates indicate that the budgetary deficit for 1980-81 will far exceed the limit of Rs 1,500 crore which the finance minister considered reasonable when he presented his budget and which, according to sources, he still considers manageable. But there are ominous rumblings in the finance and planning ministries and something has to give way if the pressure on resources keeps mounting as it almost certainly will with every day that passes. In fact, the resources position is so tenuous that the Government has found it necessary to come in, less than six months of the budget, with supplementary demands for grants aggregating Rs 1,170 crore. Ministry sources say that this need not upset budget calculations but monetary pressures will certainly be pushed up in a stagnant economy. A possibility that cannot be ruled out is that the Sixth Plan, no more than a piece of paper with a few scribbles as it is, may have to be dumped, or, in bureaucratic parlance, postponed. This has happened several times before, whenever things went out of control, or when monetary pressures became unduly severe. In fact, it was clear even when Venkataraman presented his budget that the Government was finding it difficult to raise enough funds to meet its housekeeping expenses. It was incidentally the first budget with a deficit on the revenue account.A plan holiday would set this country back decades. India needs desperately to push up its rate of capital formation and cannot afford to let the momentum of investment slacken for even a single year. After the experience of the plan holiday of 1966-69, the Government should know that even a single year's cut-back in investment has ripple effects in the economy which perpetuate and even worsen the crisis which forced the initial cut. During the entire plan holiday, public investment remained 30 per cent below the level attained in 1965-66. This triggered a massive recession in the engineering industries which then spread to the rest of the industrial sector. This might happen again.Private Sector: It might, but need not. The country's economic heart is sound but the body has become flabby - at least half the body, if the private sector is excluded. The private sector still works reasonably well considering the conditions in which it has to operate but it should do even better if left alone. Most businessmen think that the outlook for 1981 is no better than 1980 but despite all their gloomy forebodings about the future, they seem to be better placed - and equipped - to face the future than the Government. Nearly every big business group is going in for expansion.Business associations from the Federation of Indian Chambers of Commerce and Industry (FICCI) to the corner branch of the Lions Club have never been so busy receiving foreign guests and sending their own men abroad on profitable business jaunts. The air traffic between New Delhi and die metropolitan cities is thick with business executives in winter gear with bulging briefcases crammed with new projects and new products in old projects. And they talk casually about multimillion-worth plants, not just in Alwar or Madura or Goa but in such far-off places as Bandung in Indonesia. Lagos in Nigeria and Dundee in Scotland. A delegation of FICCI members even found time to visit Bombay High and give a good chit to the embattled Oil and Natural Gas Commission At least two big business groups are interested in a slice of the offshore licence bonanza, an unusual departure from the groups' traditional lines of cotton textiles and chemicals. But. as the chairman of one of them said, money is money.And when everything is said and done, the trouble with the Indian economy is that there is just not enough money in it. The Indian money machine works in spurts and often doesn't work at all. Most government companies are on the stop-go drill and many, like Heavy Engineering Corporation and others, find the going so tough they prefer to take it easy and just stop. And no one has seriously questioned why the Government should continue to run corporations it cannot manage and why it can't just hand them over to the private sector and bid them goodbye. A few voices are now being heard in respectable quarters questioning the whole public sector ethos. Raj Krishna, a former member of the Planning Commission and himself a Lohia socialist, is one of them. But there are also others, including K.S. Krishnaswamy of the Reserve Bank, whose questions, as befits a bureaucrat, are more politely worded.The fact is that there is nothing wrong with the economy that a clean new broom will not put right. There are reports that the Industry Ministry wants to do precisely that, beginning with the ancient Industries (Development and Regulation) Act (IDRA) that is now 30 years old and, considering where Indian industry has reached, at least 10 years out of date.The IDRA is essentially a licensing act with do's and don'ts more - don'ts than dos - long enough to paper the entire Yojana Bhavan. The forbidding act is possibly one reason why Indian industrialists do so well overseas and are held in such high esteem abroad. A World Bank official told industrialist Harish Mahindra in Bombay recently that "if you can run a business in India, you can run it anywhere". One of the most critical shortages faced by developing countries is not of capital or technology, but entrepreneurship the ability to see an economic opportunity, put together the resources and people necessary to exploit it and manage the operation efficiently. And India, as compared to other developing countries and perhaps even to some developed ones, has more than its share of entrepreneurs but unfortunately they spend a greater part of their talent trying to outwit the Government's outmoded regulation instead of exploiting new opportunities.Published By: AtMigration Published On: Nov 30, 2013 09:25 IST--- ENDS ---

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1980: Not a year for economic history books

It is now almost certain that 1980-81 will end up with roughly the same gross national product (GNP), in real terms, as 1978-79, which means in effect that time has stood still for the last two years.

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